Thematic (Sector/Industry)

• PDD: Douyin launches “Super Cheap Little Shop” to provide low cost products (-)
• ByteDance/BEKE: ByteDance give up offline housing brokerage business, while online business remains（+）
• NIO: NIO to officially launch all-new ES6 on May 24 (+)

• WTR-CMI last week. In what was a mixed week for the market, with S&P 500 appreciating 0.9% and the Russell 2000 slipping 1.3%, our WTR-CMI index of 30 specialty chemicals and materials stocks outperformed both broader indexes by appreciating 1.1%, led by a recovery in prices of lithium stocks, which took a tumble the previous week after the announcement of the Chilean government’s intention to increase its financial participation in large lithium projects in the country.
• Better weather drives stronger planting progress. Following last year’s planting delays caused by unseasonal weather, the 2023 planting season in the US is picking up the pace after a slower start, with both corn and soybean planting well ahead of last year and the five-year average, boding well for North American crop protection and the fertilizer market, at least when it comes to demand.
• Chinese auto sales look to rise. According to the China Automobile Dealers Association, the country should see a 50% surge in Y/Y new passenger vehicle sales in April, following a strong March, compared with the COVID lockdown period a year ago.

• 3690.HK/BABA: Meituan and Alipay release reports on May 1st holiday consumption (+)
• PDD/Temu: Chinese Media Reports Pingduoduo’s Growth Challenges and Our Perspective
• LEGN： Johnson & Johnson licensed its next generation CAR-T from a delisted Chinese biotech(-)

• Two digital banks backed by Ant Group and Tencent Holdings reported a rise in bad loans and slower growth of their balance sheets but also posted higher profits and healthy liquidity metrics
• Ant Group-backed MYbank said its nonperforming loan ratio for 2022 was 1.94%, up 0.41 of a percentage point from the previous year.
• That was still lower than the average ratio of 2.18% for small and midsize enterprise loans in China, according to the online lender’s annual report.

• NTES: Justice Mobile launches 2nd round of closed beta test (-)
• PDD: PDD announces RMB 4bn in subsidies for annual May 5th Shopping Festival (+)
• LKNCY/2150HK/ATAT: Labor Day holiday Tourism consumption recovered to pre-covid level in labor day holiday, and catering sector is leading the retail recovery trend.(+)

• Hundreds of millions of Chinese travelers crowded tourist hotspots across the country over the week-long Labor Day holiday
• Travelers made 274 million domestic trips during the holiday, up 70.83% from last year, according to data from the Ministry of Culture and Tourism
• Revenue from domestic tourism reached 148 billion yuan ($21 billion), an increase of 128.9% from the same period last year

• First Republic Bank had liquidity risk, Pacwest Bank has this and credit risk
• Pacwest saw its net charge-offs rise 4x in 1Q23 QoQ and nearly 8x YoY
• Deposits are in sharp contraction, but so are net loans, -10% QoQ

• After the accelerated transition to digital channels during Covid, the fashion sector had a calmer year in 2022 although GTVs still grew around 10%. 
• Most retailers spent the time investing in more seamless and coherent omnichannel models, and in making the best use of stores and staff in online promotions.
• This shift to omnichannel is also leading to changing merchandising, including pre-selling inventory, while others are turning their online stores into malls. 

• India’s strong growth projections are widely agreed upon, therefore warranting a deeper analysis of the key factors driving this growth, to identify potential deviations from projections.
• The Industrials sector, supported by government initiatives, plays a critical role in the growth of the Indian economy and is currently benefiting from a strong tailwind.
• While ABB India Ltd (ABB IN) and Polycab India (POLYCAB IN) are compelling investment ideas, caution is advised for Siemens Ltd (SIEM IN) and Havells India (HAVL IN).  

• ASE, the global #1 OSAT company, reported Q1’23 revenues of NT$130,891 million, in line with expectations, down 26% sequentially and 9% YoY
• Overall equipment utilisation rate fell to 60% during the first quarter
• Q1 was the trough, but so too will be Q2

• The precious metals and mining market continued to rise in April even after a sizeable outperformance of broader indices in March
• M&A accelerated in the month of April following what appears to be the peaking of rates and inflation, and persistent elevated metals prices
• This month only strengthens our confidence that 2023 will be a standout year for both precious metals and base metals, and encourage investors to position themselves accordingly

• Following the bankruptcy of FTX and Alameda Research, it is important to understand how security in crypto custody and trading works.
• In crypto security, particularly by custodians, multiple levels of security should be implemented, including physical cold storage, stock exchange level processes, multiple signature wallets, and two-factor and video authorization.
• Trust is a key component of custody and trading.

• It was a good week for most global equities, with the MSCI World Index and the S&P 500 gaining 1.77% and 1.57%, respectively.
• However, the small-cap Russell 2000 and the NASDAQ dropped 1.83% and 0.66%, respectively, as investors digested a mixed bag of corporate earnings.
• Cannabis stocks broke a seven-week losing streak and the MSOS ETF surged 6.87% this week.

• Q1’23 revenues of $2.43 billion, marginally above the guided midpoint $2.35 billion, down 17.5% sequentially and up 6.4% YoY.
• For Q2’23, the company expects revenues of $2.25 billion at the midpoint, down 4% sequentially.
• KLAC historically outperforms its peers during semi down cycles. This time will be no different.

• We believe the recent underperformance of A-share consumer staples is unjustified. Their 1Q23 results are generally decent despite negative impact from the pandemic in Jan 2023.
• Both Shanxi Xinghuacun Fen Wine Factory Co (600809 CH) and Fu Jian Anjoy Foods Co Ltd (603345 CH) witnessed good revenue growth and margin expansion. 
• Foshan Haitian Flavouring & Food (603288 CH) and Inner Mongolia Yili Industrial Group (600887 CH) have less satisfactory revenue and margin. Nonetheless, all four companies exhibited good operating cost control. 

• Global semiconductor sales for the month of March amounted to $39.83 billion, representing a 0.33% increase sequentially, the first such increase in twelve months.
• Q1 2023 sales amounted to $119.5 billion, a decrease of 8.7% compared to the fourth quarter of 2022 and 21.3% less than the first quarter of 2022.
• While small, the March MoM increase is still hugely significant.

• Q1’23 revenues of $11.7 billion, down 37% YoY and 16.5% sequentially. It was the company’s first earnings beat since Q1’22.
• Forecasts Q2’23 revenue of $12 billion at the midpoint, with non-GAAP gross margins sliding a further 0.9 points to 37.5%
• Annual GAAP GM has fallen from 61.4% in 2018 to 42.3% in 2022. But why?

• When considering future investment opportunities, the renewable energy transition continues to be an exciting space to investors given its enormous potential total addressable market coupled with climate change legislation that is acting as a tailwind in virtually every G-20 country.
• Almost every month, there continues to be a steady drumbeat of new rules issued locally and across the globe which results in faster timelines to transition to battery storage and other clean energy as well as tighter restrictions to ultimately phase out traditional gas powered transportation and coal power.
• For example, while California has already passed rules requiring all new cars, pickup trucks and SUVs sold to be electric or hydrogen by 2035, California approved rules last week which will require all new medium heavy-duty truck and bus sales sold in the state in 2036 to be zero-emission

• Exposure to the Taiwanese Banks sector has been in near constant decline for the best part of the last decade.
• Just 4.5% of Asia Ex-Japan funds hold a position, with active managers running near record underweights of -1.06%, on average.
• Investors should consider potential catalysts that could improve the investment outlook for banks in Taiwan, given the broad consensus on positioning.

• Japanese stocks rose to multi-month high in April, following US tech gains and BoJ’s unchanged policy
• Interest rates and bond yields declined, while yen weakened and inflation rose more than expected
• Retail sales and industrial output increased, while unemployment rate reached highest level in over a year

• Q1’23 operating profits of 0.64 trillion won, the lowest since Q1’09
• Strong sales of flagship S23 smartphones helped avert an otherwise inevitable overall group operating loss.  
• Outlook for the current quarter is for more of the same, albeit the bottom line will depend on the extent (if any) of memory inventory write-downs. 

In the next installment of our Webinar Wednesdays, we are glad to welcome Smartkarma Insight Provider Shifara Samsudeen, ACMA, CGMA , as she takes us through her insights and top picks in Japan’s investment space. From bubbling trends, to what’s next in the space, do join us to get the full picture.

The webinar will be hosted on Wednesday, 03 May 2023, 17:00 SGT/HKT.

Shifara Samsudeen, ACMA, CGMA is a chartered management accountant with more than 10 years of rich experience in investment research and financial analysis. She has worked as an equity analyst for one of the world’s largest asset managers with USD2.5 trillion in AUM covering numerous sectors including chemicals, retail, tech, autos, telco, real-estate and banks, globally. She is experienced in fundamental equity research, industry research, commodity studies, forensic accounting, and due diligence reviews.

• SK Hynix reported a Q1’23 net loss of ~ US$1.9 billion
• As was the case with Micron, the company pegged Q1’23 as the trough for the current downturn and now expect quarterly revenues to grow sequentially
• Recovery may be nigh, but the macro outlook has actually worsened. The road to recovery will be a long and winding one. 

• Active China A-Share funds scale back Financials exposure to record lows.
• A-Share Financials are the largest sector underweight by some distance, held below benchmark by -8.6% on average
• Outside of 6 well held stocks, active A-Share managers are staying well clear of a long tail of companies that are well represented in the MSCI China A-Share benchmark.

• Demand for hotel rooms and air tickets during this year’s Labor Day holiday is on track to exceed pre-pandemic levels of 2019, industry data showed
• Many of the bookings were for destinations in the Yangtze River Delta region, Chongqing municipality, Chengdu and the Beijing-Tianjin-Hebei cluster
• The rebound in travel comes amid a broader recovery in tourism, with Qunar saying that tickets tourist attractions in Beijing, Shanghai, Nanjing, Guangzhou and Xi’an have been selling fast.

• The past three quarters have seen memory revenues collapse by 60%
• DRAM and NAND prices have reach cost, and the business should remain profitless for an indefinite time
• Management appears to have no idea when this situation will end

• Wealthy Japanese staying in Japan, more people acquiring wealth, a return of inbound tourists and better merchandising and store investment. 
• All combined to help department stores rebound strongly in 2022 but there has been a sharp shift in where department stores make their money.
• Further growth is expected but only for some, and in some product categories much more than others.

• BZ: Kanzhun Limited: China State Council issued a series of policies to stabilize employment market.(+)
• BILI/1024HK/3690HK: New Internet ads measures take effect since May 1(-/-/+)
• 3690 HK: RED preparing to launch group buying function (-)

• We see the future, post decoupling world to have two operating systems, one surrounding US and the other surrounding China.
• Both US and China will develop respective partners to complete their ecosystems. We will soon have a world running on two sets of standards
• While the western world dominates the old order and the new frontiers, China is leading in the new order of energy, drug and manufacturing.

• Taiwan’s UMC, the world’s third largest foundry, reported Q1’23 revenues of NT$54.2 billion, a decrease of 20.1% QoQ and a 14.5% YoY, in line with expectations
• Q2’23 forecasted flat sequentially, outperforming TSMC’s outlook for a 6.5% QoQ decline
• Management foresees recovery being slower than previously anticipated and to admits to having very limited visibility into H2’23

• WTR-CMI last week. In what was a mixed week for the market, with the Russell 2000 appreciating 0.6% and the S&P 500 remaining virtually unchanged at (0.1%), our WTR-CMI index of 30 chemicals and materials technology stocks underperformed, declining 0.3%, as lithium stocks led by ALB suffered from Chile’s decision to nationalize its lithium mining industry, once existing contracts with private companies (mainly SQM and ALB) expire.
• SHW exits another paint market. When the company acquired Valspar, it did not only shore up its presence in the North American big-box distribution channel and expand its industrial coatings business, but it also gained exposure to non-North American paint markets, specifically China and Australia.
• SHW divested the Australian business two years ago and now has also found a buyer (Akzo) for its Chinese paint business, which may have contributed to SHW topping the list of WTR-CMI stocks appreciating last week.

• Chinese outbound air travel in the region surged in March, up 50%+ versus February
• Domestic improvement more muted, but still up about 75% Y/Y in Q123
• Is the expected recovery on track? Sure, but so far no upside surprises for investors

• BABA/700.HK/BIDU: AliCloud will significantly cuts prices of its cloud products (-/-/-)
• PDD: Temu expands into multiple European countries in Germany, Netherland, France, Italy, Spain, and the United Kingdom. (+)
• BGNE: Ociperlimab/Novartis trimmed 10% of its pipeline in C1Q23 earnings and did not mention Ociperlimab (-)

• China’s retail pharmacy market has entered a new era of integration as the industry growth is slowing down. After JD Health/Alibaba Health enter this industry, the game rule changes. 
• In the short term, the offline chain pharmacies, JD Health, Alibaba Health, etc. would still have the opportunity to carve up market share under the trend of prescription outflow.
• In the long term, it depends on who’re the first to establish new omni-channel retail scenarios, because the “new retail” model would comprehensively surpass traditional model from cost to experience.